Section II: 3 Questions, Answer all: 80 points

Question 1

(i) Define Foreign Direct Investment (FDI) and distinguish between flow of FDI and stock of FDI. Give an example of an FDI outflow from one country to another country.

(ii) FDI in emerging economies, such as oil-exporting nations in South America, Africa, and Eastern Europe, can be extremely profitable for multinational enterprises. It can also result in substantial losses if economic conditions in the host country deteriorate. If you were the head of a major manufacturer of household goods seeking entry into the market of a country experiencing strong economic growth due to its oil and gas exports, which FDI strategy would you pursue? Would you seek to acquire an existing firm, or build entirely new facilities (a greenfield investment)? [Provide a detailed explanation. Max: 1 page]

(iii) Carefully Read the following excerpts on Tunisia, Bolivia, and Sri Lanka and rank how business friendly they are for exporting (a) agricultural goods and (b) manufactured goods using the table below. Rank using this scale: Most friendly = 1; Somewhat friendly = 2; Least friendly = 3.

~Tunisia introduced a tariff schedule on January 1, 2016 that applied tariffs of zero percent for raw materials, energy, intermediate goods, and equipment, and 20 percent for manufactured products. Agricultural goods were subject to customs tariffs ranging from a zero to 36 percent, with most agricultural imports at the high end of that range.

~In 2017, Bolivias simple average applied tariff was 11.1 percent. The rates in principle apply according to the category of the product: zero percent for capital goods (machinery and equipment) and certain meat and grain products; 5 percent for capital goods and inputs; 15 percent for fruit, vegetables, fish, and raw materials for manufacturing plastics; 20 percent for other manufactures and value-added products.

~Since 2017, Sri Lankas main trade policy instrument has been the import tariff. There are currently three import tariff bands zero, 15, and 30 percent. Generally, raw materials are at zero import duty, intermediate goods are at 15 percent, and finished goods are at 30 percent. Additionally, some items, such as various agricultural products, are subject to an ad valorem or specific tariff, whichever is higher.

Country ranking by Agricultural Goods	Country ranking by Manufacturing Goods
1.	1.
2	2.
3	3.